By Jeff Ferry, CPA Chief Economist
The US trade deficit jumped 8.4 percent in May, to $55.5 billion, as compared to April’s $51.2 billion, according to data published today by the Department of Commerce. On a year-on-year basis, the jump was even larger, up 25.2 percent over the May 2018 figure of $44.4 billion.
However, monthly data is highly volatile. The year-to-date figures show that in the first five months of 2019, our trade deficit rose just 6.4 percent, to $261.4 billion. That’s a big improvement in the growth rate over the the picture in 2018, when our annual trade deficit rose 14.1 percent to $627.7 billion. In 2018, our economy has grown roughly 3 percent, and we saw a similar growth rate in the first quarter of this year. This suggests our economy is now growing with less of a propensity to suck in imports. Total imports of $1.307 trillion in January through May have grown just 1.6 percent year-to-date, while in 2018 as a whole, total imports grew by a much larger 7.8 percent, to $3.129 trillion.
The US bilateral deficit with China also jumped in May, to $30.2 billion, 12.3 percent worse than April (using the non-seasonally adjusted figures). However, once again, on a year-to-date basis, our position with China is much better than a year ago. In the first five months of 2019, our China deficit came in at $137.1 billion, 10 percent less than the comparable year-ago figure of $152.1 billion. This shows that tariffs on China are working, and are reducing China imports as a share of total US imports. If the trend continues, by the end of this year, our bilateral deficit with China could improve from last year’s $420 billion to a figure in the region of $375 billion. Of course, additional China tariffs would put more downward pressure on China imports. In a recent study, CPA showed that across-the-board 25 percent tariffs on China could increase US GDP by $125 billion and lead to the creation of an additional 721,000 US jobs.
“The tariffs are reducing our dependence on China, and we see promising signs of some companies moving production back to the US,” said CPA Chief Economist Jeff Ferry. “More needs to be done to get the dollar back to competitive levels, which will help our trade and our domestic manufacturing and farming industries, and more companies need to get the message that the US is a great place to produce.”
In the past five years, the dollar has risen about 11 percent against the Chinese renminbi and 20 percent against the euro.
As tariffs bite into China’s ability to export to the US, other nations are benefiting from US demand. With total goods imports up, albeit slightly—just 0.9 percent in the January-May period compared with 2018—the US is getting its imports elsewhere. Census data shows the deficit with Mexico came in at $9.6 billion in May, 18 percent worse than April’s figure. On a year-to-date basis, our Mexico deficit was $40.5 billion, up a stunning 34.6 percent from the comparable 2018 figure of $30.1 billion. The same trend is visible in imports from Mexico, which were $149.1 billion in the first five months of this year, up 7.0 percent from the year-ago period. If current trends continue, our deficit with Mexico is likely to breach the $100 billion mark this year.
Vietnam is another nation that has benefited from the China tariffs. Our deficit with Vietnam jumped 10.9 percent in May, to $4.26 billion. On a year-to-date basis, our Vietnam deficit reached $21.6 billion, up 42.6 percent from the year ago level. Our goods imports from Vietnam in the first five months totaled $25.8 billion, up 36.4 percent from the comparable 2018 period. Vietnam is still not listed separately in the Commerce Department’s press release, but with the growing significance of Vietnam in America’s import profile, that is likely to change soon.
Looking at trade in specific products and industries, soybean exports surged 41.2 percent in May to $2.49 billion. On a year-to-date basis, soybean exports are up 6.7 percent to $8.8 billion. Civilian aircraft exports also surged, up 18.4 percent to $3.1 billion. However on a year-to-date basis, aircraft exports are down 12.0 percent at $20.4 billion, suggesting that Boeing’s travails are hitting the aircraft industry. By contrast, exports of aircraft engines are up a strong 14.4 percent at $23.0 billion.
Automotive imports (including vehicles, parts, and engines) rose 7.5 percent in the month to reach $33.2 billion. On a year-to-date basis, automotive imports are up 4.7 percent, to $159.5 billion. With automotive exports roughly flat year-on-year, our automotive deficit reached $91.3 billion for the first five months of this year, compared to $83.1 billion a year ago.
Finally, pharmaceuticals continue to take a growing role in our trade figures as they do in total US spending. Our pharma exports rose 3.7 percent in the month, to $5.1 billion. Year-to-date pharma exports are up 14.5 percent, to $25.3 billion. However that increase is overwhelmed by pharma imports of $60.3 billion in the January-May period, up 8.8 percent from the year-earlier figure, leaving us with a pharma deficit of $35 billion.
Pharma imports are the main reason why our deficit with Ireland rose in the month by 23.4 percent to $5.1 billion. Our year-to-date deficit with Ireland was up 15.1 percent at $21.2 billion, making Ireland our second-largest deficit country in Europe after Germany. Propelled by Americans’ huge demand for pharmaceuticals, our imports from Ireland in the first five months of the year were $24.8 billion, more than our imports from Italy—and likely to surpass our imports from France and the United Kingdom by years’ end. It will be a stunning development for Ireland, a small island with 4.8 million people once known mainly for beer and atmospheric medieval castles in the countryside, to become Europe’s second largest exporter to the US.